# Canada Small Business Financing Regulations

**10**(1) On or before the day on which a loan is made, the lender and borrower must sign a document that sets out the principal amount of the loan, the rate of interest payable on the loan, the repayment terms, the frequency of principal payments and the date on which the first principal payment is due.(2) The repayment terms must provide that

(a) the loan is payable by instalments;

(b) at least one principal instalment is payable annually; and

(c) the first principal instalment is payable no later than one year after the day on which the loan is made.

(3) If a loan has a loan term of less than the maximum period specified in paragraph 6(b) and the loan is in good standing, the lender may renew it for additional terms, at an interest rate not greater than the maximum rate calculated under section 12 as at the renewal date, to an aggregate maximum term of 10 years, calculated as of the date on which the first principal payment is due.

(4) A loan made with an interest rate calculated in accordance with paragraph 12(b) may, with the consent of the borrower, be converted to a loan with an interest rate calculated in accordance with paragraph 12(a) and the lender may impose a charge for the conversion in an amount that does not exceed the greater of

(a) three months interest on the outstanding principal balance of the loan, and

(b) the amount by which

(i) the net present value of the outstanding principal balance of the loan for the remainder of its loan term calculated at the date of the conversion and discounted at the Bank of Canada Bank Rate as of that date

exceeds

(ii) the net present value, calculated and discounted at the Bank of Canada Bank Rate as of the date of the conversion, of a loan for the amount of the outstanding principal balance if it were made on that date for the remainder of the loan term.

(5) A loan made with an interest rate calculated in accordance with paragraph 12(a) may, with the consent of the borrower, be converted to a loan with an interest rate calculated in accordance with paragraph 12(b).

(6) A loan made with an interest rate calculated in accordance with paragraph 12(b) may, with the consent of the borrower, be converted to a loan with another interest rate calculated in accordance with that paragraph and the lender may impose a charge for the conversion in an amount that does not exceed the greater of

(a) three months interest on the outstanding principal balance of the loan, and

(b) the amount by which

(i) the net present value of the outstanding principal balance of the loan for the remainder of its loan term calculated at the date of the conversion and discounted at the Bank of Canada Bank Rate as of that date

exceeds

(ii) the net present value, calculated and discounted at the Bank of Canada Bank Rate as of the date of the conversion, of a loan for the amount of the outstanding principal balance if it were made on that date for the remainder of the loan term.

(7) A borrower may prepay up to 10% of the original loan amount each year on the anniversary of the day on which the loan was made and on a non-cumulative basis without penalty.

(8) If, on the anniversary of the day on which a loan was made, the borrower prepays more than 10% of the original loan amount, the lender may charge a penalty, on any amount in excess of that 10% that is prepaid, in an amount that does not exceed the greater of

(a) three months interest on the excess amount, and

(b) the amount by which

(i) the net present value of the excess amount for the remainder of the loan term calculated at the date of the prepayment and discounted at the Bank of Canada Bank Rate as of that date

exceeds

(ii) the net present value, calculated and discounted at the Bank of Canada Bank Rate as of the date of the prepayment, of a loan for the excess amount if it were made on that date for the remainder of the loan term.

(9) If, at any time other than on the anniversary of the day on which a loan was made, the borrower prepays the whole or any part of the original loan amount, the lender may charge a penalty, on the amount that is prepaid, in an amount that does not exceed the greater of

(a) three months interest on the prepaid amount, and

(b) the amount by which

(i) the net present value of the prepaid amount for the remainder of the loan term calculated at the date of the prepayment and discounted at the Bank of Canada Bank Rate as of that date

exceeds

(ii) the net present value, calculated and discounted at the Bank of Canada Bank Rate as of the date of the prepayment, of a loan for the prepaid amount if it were made on that date for the remainder of the loan term.

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